5 tips to improve your business credit score

Making sure your business has a strong credit score is a must, no matter your industry. Whether you’re trying to get a loan to finance a new property acquisition or need to rely on credit to support your company’s cash flow while you wait for your receivables to be paid, your credit score will prove crucial. Simply put, lenders aren’t likely to take a risk on a business with a bad credit score. Having no credit history is also a barrier for financing, though, which can be a substantial problem for start-ups or young businesses.

Regardless of your business’s current situation, here are five tips that can help you improve your credit score and help you secure the financing you need, when you need it.

Form a legal company

Especially with the freedom of the Internet, many professionals are going into business for themselves. Often, these arrangements start not as official businesses, but as freelance or ‘gig’ operations. If you plan to grow your business or turn it into a full-time livelihood, though, you will eventually want to form a limited company. Making this move will legally separate your personal finances from your business finances, which can help you start building that business credit score. You can establish a limited company in the United Kingdom by going through Companies House.

Limit debt and try not to overuse credit

You know that old mantra about how ‘you have to spend money to make money’? When it comes to building a business credit score, few pieces of advice could be worse. If the only way to start your business or take it to the next level is to take out big loans or max out your credit cards, accept that you might not be ready for the next step yet. It’s certainly possible that you might need a loan or two to find your footing. Any loans you take on, though, should be small, and you should offset them by never overspending on credit cards or paying your bills late. By controlling your debt, you will not only improve your credit score, but you will also keep your business stable and save money in the long run. Often, the key here is learning how to tell the difference between the things your business needs right now and the things it can wait a few months to purchase.

Open several accounts (and keep them open)

While you need to be careful about not overusing your business lines of credit, you also need to recognise that building a credit score is a game. To win, you first have to play. That means opening several business credit cards or other lines of credit and making a point of using them. Having those couple of small loans we mentioned above—and making your payments on time every month—will also be a factor. The easiest way to build your business credit score is to use credit, make payments on time and avoid interest. Finally, make sure to keep your lines of credit open. Closing those accounts—even if you don’t really need them anymore—can actually hurt your credit score.

Pay your bills on time

Whenever you can, pay your bills on time. Doing so may limit your cash flow and delay purchases of key services or equipment, but it will be better for your business in the long run. Again, making payments on time avoids interest, thereby saving you money. Late payments also look very bad on your credit report and can cause damage to your credit score that won’t be easy to rectify. Simply put, creditors like to see debtors with a good track record for keeping up to date with their payments. If you can show a record of timely bill payments, you are far more likely to secure financing than you will be if your business makes a habit of paying bills late.

Monitor your credit score over time

How can you know if your credit score is improving if you aren’t keeping track of it? You should make a point of checking your business credit score monthly, to make sure you aren’t overlooking something that is damaging your credit score. You should also sign up for a service that monitors your score for you. Among other things, these services let you know when someone searches your credit history information. Since having too many credit searches in a short period can hurt your credit score, it’s good to know who is looking and why. Ultimately, monitoring your business credit score will help you spot problems—and fix them—before they cause too much damage.

Building a respectable business credit score is not something you can do overnight. Credit is based on track record, habit and history, which means one big mistake—such as paying a bill a month late—will hurt you a lot more than any one thing can help you. However, by following the strategies above and developing good financial habits, your business will gradually accumulate a credit score that lenders will respect.